1. Basic concepts

For one pizza, Taras uses 1 pizza base for $0.03 ($10*1/300), 0.3 kg of cheese for $3 ($500*0.3/50), 0.2 kg of salami for $2.4 ($300*0.2/25), and 0.15 kg of olives for $1.2 ($40*0.15/5). He notes that for making one pizza, the electric oven uses electric energy for $0.2. He has decided not to take into account the electric energy and personal labor. Taras also pays $1 for the express services. Let’s calculate the total cost of goods sold: $0.03 + $3 + $2.4 + $1.2 = $6.63

The sales operation will have the following transactions:

Let’s analyze the Debit and Credit parts of accounts. Note that the new accounts were used. They are Customer, Sales, Cost of goods sold, and Delivery Expense.

In the first transaction, we use the Customer and Sales accounts. The Customer account is the company’s Asset, because this account contains the amount that the Customer must pay to the

Company. Since this Asset is increased by $15 the Debit part is used. We already know that in one transaction, the Debit part should be equal to the Credit part. So, for the Sales account, the Credit part is used. At first sight, the Sales is the Asset account, because it contains the amount of money that the company earns. But, it is not the Asset. Because the company should give all profit to the owners. The Sales account contains the amount that must be returned to the company owners, in other words, Sales is similar to Liabilities.

In the second transaction, we use the Cost of goods sold account. The Cheese, Pizza basis, Salami, and Olives account are the Assets accounts. For the Assets account, the account amount is Debit – Credit. Since the account amount is decreased, the Credit part is used. In other words, the quantity of

ingredients decreased in the stock – it is bad for the company, the Credit part is used. Since in one transaction, Debit = Credit, the Debit part is used for the Cost of goods sold account. Cost of goods sold is similar to the company Assets account.

The Sales and Cost of goods sold accounts answer the question whether the Company makes profit. If Sales plus Cost of goods sold are more than zero, the company is profitable. These accounts are named the Profit & Loss accounts. All Profit & Loss accounts are located on the right side of the circle. Because the Company makes profit, then this profit should be returned to the owner. In other words, the company’s profit is the liabilities.

Since the Profit&Loss accounts belong to the Liabilities, the total Profit & Loss amount is Credit – Debit (of all Profit&Loss accounts). Note that the Sales total amount is positive and the Cost of goods sold total amount is negative.